Leading real estate advisor CBRE has released its latest figures on the office markets in Glasgow and Edinburgh during the third quarter of 2023.
Take-up for the Glasgow office market reached 127,515 sq ft in the third quarter of the year, showing a vast improvement from the previous quarter, which was 95,809 sq ft, representing a 33% increase and showing the market is steadily improving throughout the year. This brought the total take-up for the year to date in Glasgow to 297,389 sq ft. Whilst down on the same period in 2022, the number of deals remains steady, demonstrating that occupiers are still taking space.
There was only one new build Grade A deal for new space in the third quarter, a 10,112 sq ft letting to SThree Management Services at Cadworks, showing the lack of new available Grade A space continues to be an issue in Glasgow city centre. The largest deal in Q3 was a 27,831 sq ft letting at Lucent on Bothwell Street to Pinsent Masons, and other notable transactions included 14,284 sq ft at 55 Douglas Street to Reach and Material Source taking 6,771 sq ft of space at 180 West George Street.
Overall supply is up slightly on last quarter, with 2.79m sq ft of office space now available within the city. However, the vacancy rate for new, best-in-class Grade A office space in the city centre is incredibly low at just 0.36%, indicating a severely limited supply.
Prime rents have increased in Q3 to £39.50 per sq ft, ahead of the predicted timescale which was the end of the year. This positive rental growth has been amplified by the lack of new development coming out the ground, in addition to continued rising construction costs.
Martin Speirs, Associate Director from CBRE in Glasgow, said: “This third quarter has shown once again the robust and resilient nature of the Glasgow office market; a market that even in tricky economic conditions still seems to have the ability to rebase and recover. Whilst the office sector in general continues to be affected by current financial pressures, fuelled by inflation, high interest rates and a struggling pound, Glasgow’s office market has picked up the pace after an initial slow start to the year, and the strong Q3 results are testament to that.
“With its highly educated workforce, competitive office rents and vast office stock, Glasgow remains a destination that people aspire to live, work and play in, a massive reason so many office occupiers choose to take space in the city. With 1.925m sq ft of lease events set to trigger within the next 48 months, there is further reason to believe the office market should start to boom once more in the very near future.
“The demand will most likely be for best-in-class, modern, ESG-spec Grade A space. And so the city will look to developers to push on and increase office deliveries, as currently the city’s pipeline is constrained. Many building owners have taken to redevelopment to meet the increased occupier demand for best-in-class, ESG-compliant Grade A space. The recent letting activity at 50 Bothwell Street is evidence of this. The historic sandstone building, rebranded as Lucent, has welcomed Pinsent Masons as its first tenant since commencing its extensive refurbishment. We expect further refurbishment and redevelopment in the city in the short term whilst new development remains constrained.
“Rents for both Grade A and high-quality Grade B are forecasted to continue to climb further in the next 18 to 24 months. The lack of new stock being delivered, rising building costs and inflationary pressures have combined to create a scenario where even the most negative of office agent within the city can’t deny the likelihood of reaching £40 per sq ft in the very near future.”
Take-up in the Edinburgh office market in the third quarter of the year has remained steady with a total of 164,281 sq ft, only down slightly from Q2’s 172,580 sq ft. This brought the total take-up for the year to date in Edinburgh to 460,801 sq ft, 26% more than the same period in 2022.
Out of town office buildings proved popular in Q3 with over 60,000 sq ft of the total take-up in West Edinburgh. This included Element taking 16,000 sq ft at 1 New Park Square and Pulsant securing 10,000 sq ft at 4/5 Lochside Avenue. The largest deal of the quarter was also in West Edinburgh with Scottish Water Business Stream taking a sub lease of 25,600 sq ft from Aegon at 1-3 Lochside Crescent.
The vacancy rate for new Grade A office space in the city centre remains low at 0.53%, indicating a limited supply. Overall supply reduced slightly, with 1.67m sq ft of office space now available within the city. However, Grade A new supply in the city centre increased with 95,740 sq ft now available.
Prime rents in Edinburgh remain high at £43 per sq ft and are expected to rise further before the end of the year, This is primarily due to the limited availability of new Grade A developments and the demand for high-quality spaces driven by factors like ESG considerations and employee wellbeing.
Beverley Mortimer, Associate Director from CBRE in Edinburgh, said: “What we are seeing in the Edinburgh office market is a disparity in occupiers that are considering their future office space and leases significantly further in advance than ever before – there are live requirements in the market with lease events out to the end of 2026 – versus those occupiers who are uncertain about their future workplace requirements, and have considered their options as close to their lease event as possible, frequently resulting in a lease regear or extension. Adding to this, a significant volume of requirements in the market are for existing, good quality, fitted space where the occupier can make savings on their fit-outs therefore mitigating future risk in respect of occupancy rates and the ongoing return to the office.
“Demand remains strong for new or best-in-class space, highlighted by those occupiers issuing their requirements significantly in advance of their lease events in order to secure the quality they want. Pipeline stock and development continues to move slowly with a reluctance from developers to speculatively build or refurbish stock despite prime rents now sitting at £43 per sq ft and growing. What we are now seeing is an increase in the volume of buildings being converted to alternative uses that were previously being considered as office refurbishments.”
Commenting, Angela Lowe, Head of Advisory and Transactions at CBRE Scotland, added: “Despite costs coming into sharper focus for many businesses, there is still a drive to secure good space to help staff return to work and, particularly if space-sizing, longer term efficiencies can outweigh the costs of relocation. We anticipate a busy end to the year across the country given the amount of space that is under offer and viewing activity.”